Delving into the Draghi report
Author : Hamish White, Mobilise
28 October 2024
Economist, academic, banker and former Italian Prime Minister, Mario Draghi, has a lot to reveal in his 400-page EU Competitiveness report. Offering a comprehensive analysis of the challenges Europe is facing in innovation, it highlights several statistics that underscore the gap between the EU and its global competitors.
Here, Hamish White, Founder and CEO of BSS telecoms software provider Mobilise, offers his take on the report and what it reveals about Europe’s technology landscape.
The report reveals a stark reality: Europe is significantly lagging in technological advancement. Only four of the world’s top 50 tech companies are European, and EU firms grapple with energy prices that are two-to-three times higher than their US and Chinese counterparts. For two decades, the leading European investors in R&D have predominantly been automotive companies, whereas the US has shifted to tech giants. Alarmingly, no EU company with a market cap exceeding €100 billion has emerged from scratch in the last 50 years, while six US companies have reached valuations above €1 trillion during the same period.
What’s holding Europe back?
The report identifies two primary culprits behind Europe’s stagnation: an inadequate funding ecosystem, and overregulation. While Europe’s funding landscape has historically been viewed as less dynamic than that of the US, the report reveals that investors are not seeing adequate returns. This discourages investment and drives talent and innovation to the US, where opportunities appear more favourable.
Though overregulation is often cited as a hindrance, the reality is more nuanced. Many EU regulations aim to protect consumers and promote competition. For example, the recent Digital Markets Act legislation, allowing third-party app stores on Apple devices, is a significant move toward dismantling monopolistic practices. While some regulations may impede innovation, the solution lies not in their outright removal but in finding a more effective balance.
Hamish White, Founder and CEO, Mobilise
What about telecoms?
The sections of the Draghi report discussing the telecoms industry could have benefitted from deeper analysis. While it highlights the necessity for favourable regulations to facilitate mergers and acquisitions, as well as Europe’s sluggish 5G and fibre rollout, the underlying challenges extend well beyond mere deployment speed.
We know that the mobile industry is increasingly moving to 5G standalone (SA) and 5G-Advanced standards to unlock use cases and create new revenue streams. According to the GSMA, as of January 2024, 47 global operators offered commercial 5G services on SA networks. Increased 5G SA and 5G-Advanced activities will kickstart a new round of 5G investment – but Europe needs to streamline regulations, provide investment incentives, optimise spectrum management, and invest in upgraded infrastructure, to earn a bigger slice of the network’s potential.
Moreover, the report mentions spectrum harmonisation and outdated fee structures, yet fails to explore the potential benefits of completely eliminating spectrum fees. Removing these fees could enable operators to reinvest savings into innovation efforts. Convincing EU member states to forgo these revenues presents a significant challenge. Spectrum fees have historically served as a reliable source of government income, contributing billions to national treasuries. Germany, for instance, raised €6.5 billion from its 5G spectrum auction in 2020. This reliance on spectrum fee revenue creates a tension between the immediate fiscal benefits and the long-term growth potential of a more innovative telecoms sector.
The high barriers to entry in the mobile industry further complicate matters. New entrants face substantial obstacles, such as the high costs associated with infrastructure development, and the regulatory hurdles involved in obtaining spectrum licenses. Countries like Sweden and Finland have made strides in reducing these barriers by fostering public-private partnerships and investing in shared infrastructure, demonstrating that a collaborative approach can help mitigate entry challenges and stimulate innovation.
What now?
Among the report’s key recommendations is the establishment of an “Innovative European Company” framework, which would allow businesses to register in one member state and operate across the EU with a single digital identity. While this sounds promising, its potential impact on the digital services industry remains questionable, as barriers for cross-border operations are already minimal.
In conclusion, the Draghi report underscores the multifaceted challenges Europe faces in fostering innovation. From technological lag to high energy costs and a stagnant funding ecosystem, these issues are deeply rooted. Regulatory reform and increased investment are vital, but Europe must foster a more investor-friendly climate. Ultimately, the EU must work to make its funding, regulatory and technological ecosystem as appealing as that of fellow global superpowers to ensure sustainable innovation in the long term.
Want more insights on building a strong telecoms identity? Why not check out Mobilise’s podcast, featuring industry insights and expert advice from the team.
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